Memorandum [SAMPLE ONLY]

Date: 05/11/10

To: Presidential Candidate 2012

From: Student A (Senior Forensic Economic Analyst)

American Economics Group.

Executive Summary

Based on the current situation that our country is facing nowadays, the

government and Federal Reserve System, jointly, will have to present serious fiscal and

monetary policies in order to get our economy out of this current recession that is

affecting most households and businesses in the US. Apparently, our biggest concern

at this moment relates to the rising number of people unemployed throughout the

country. In a relative short period of time, unemployment rates rose from 5% in January

2008 to 10% by the end of 2009. Another vital sign of our economy that we should be

concern, despite an increase in the last quarter of 2009, is our GDP. During last year’s

first quarter the US real GDP decrease more than 6%, responding to the anxiety

surrounding our economy. At the moment, inflation seems to be under control, but both

government and the FED need to make sure that whichever policies they pretend to

impose, do not increase Inflation rates above the normal average.

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 Our recommendations, in the short run, to achieve a satisfactory level of

economic growth, would start with a sales tax cut only for goods manufactured in the

US and also for services in general. That will be a huge incentive not just for consumers

to start buying more, but also for domestic firms to start producing additional goods and

services, and consequently hire more people, reducing our unemployment rate. To

leverage this suggested fiscal policy the FED will have to increase the amount of money

circulating into the economy, and consequently bring interest rates down. In the long

run, improvement in labor, through educational programs, will help our workforce to

increase its knowledge. Consequently, investments in education will keep us up to date

with new technologies that eventually, in the future, will help us to succeed in today’s

world competitive environment.

State of the Economy

Real GDP

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 The graph above shows that in the last two quarters of 2008 and the first two of

2009 our real GDP decreased about 14% (all four quarters combined). Even though we

see an increase in the third quarter of 2009, of a little more than 2%, we still need to be

concern about those numbers. The fact is that with the declining of the US economy,

many countries in the world got hit pretty badly, because they depend on their exports

to the US. In order to revitalize their economies, most of those countries are looking for

other business partners, so they do not have to depend exclusively in the US.

Meanwhile, those countries may form new alliances, especially if they do not see a

quick increase in our economy, represented by a poor performance of our real GDP.

Employment

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 The graph above represents the percentage of unemployed people in our labor

force since 01/99 until 01/09. After the 2001 recession, unemployment rate rose from

4% to about 6.2% in the middle of 2003. As the graph shows, by the end of 2006 the

rate dropped to about 4.4% and stayed within our natural rate of unemployment.

Starting in 2008 until the present time our unemployment rate increased steadily,

becoming an important issue to be solved by our government.

Inflation

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 According to the graph above, the month percent change in our inflation was kept

around the same range since 01/99 until 01/09, with an exception of two periods:

around September 2005, in just one month, inflation rate rose about 1.5%, and by the

end of 2008 it dropped about 1.8% in that respective month, responding to the serious

recession that is still affecting our nation. When it comes to inflation, at the current

moment, we do not have to worry about it so much, but depending on the fiscal and

monetary policies that will be used by our national government to get us out of this

recession, inflation may rise more than expected.

2 Short-term Economic Policy Options

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 In order to close the recessionary gap that our economy is currently in, the

American Economics group suggests to the 2012 presidential candidate, a sales tax cut

only for goods manufactured in the US and also for services in general. Both consumers

and domestic firms will be benefited by this fiscal policy. Consumers will be able to by

more and national producers will perceive this new policy as an incentive to produce

additional goods and services. This will be a crucial change that could bring our

unemployment rate down and change the expectations around our economy, attracting

more investors from other parts of the world, also making our consumers and firms

more optimistic.

The graph shows a shift on the aggregate demand curve to the right, which

represents the change made by the fiscal policy suggested above. This will bring the

economy back to LRAS level, and eventually close the recessionary gap.

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 Another short-term economic policy that we suggest is an increase in the money

supply by the FED, by buying bonds from bank institutions. As a result, a decrease in

the interest rates will occur. In order to prevent inflation to rise rapidly, the FED will have

to introduce the money into the economy slowly. The initial amount suggested is $300

billion, which will be spread evenly throughout the next three years.

The graph shows the increase in the money supply by the FED and its

consequences. By increasing the money supply interests rates will fall from r1 to r2.

2 Long-term Economic Policy Options

To sustain our credibility with our own people and to make sure international

capital will flow into our economy, educational programs will be the foundation to

achieve satisfactory labor improvement in all segments of our system, achieving a

reasonable level of human capital. American Economics Group recommends an

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increase in scholarships available, especially for the people with low income that are

currently enrolled in public institutions throughout the country. Another segment of our

economy that can not be put aside is technology. Investments in this sector will be really

important to direct us towards a prosperous future.

As a way to accomplish those objectives, we think that the future government

should invest an additional sum of $500 billion spread throughout the next 6 years of

administration.

American Economics Group certified that the information above is true and

correct to the best of our knowledge.

Sincerely,

Student A

-Senior Forensic Economic Analyst-

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